History of State Farm Insurance
State Farm Insurance, now one of the largest insurers in the United States and Canada, had its start in a farming community located in Merna, Illinois. Retired farmer and former insurance salesperson George Mecherle recognized that there was a lack of affordable automobile insurance available to the farmers in his state. Drawing from his own experience and capital, Mercherle formed the State Farm Mutual Automobile Insurance Company in June 1922.
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Business Model
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The company emerged as a farmer-owned and operated mutual company, a company owned by its policyholders who also share in the profits. To gain a competitive marketing edge, State Farm used a then-unique pricing policy. Rates varied based on the risk level instead of the current flat rate charged by other companies. Additionally, since the policyholder shared in both the profits and the losses, there was incentive to keep losses to a minimum. The accident-free discount commonly available now, was unknown at this time.
Founder
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Mercherle, the founder, was the fifth son of German immigrants who came to America in 1852 and settled in Illinois six years later. He did not complete high school but was a hard worker and a good storyteller, traits that served him well as a salesperson and entrepreneur. Mae Edith Perry, his first wife, was the reason he retired from farming and later encouraged and supported his plans to provide affordable insurance to farmers. After Mae's death, he married Sylvia Caldwell who had been with the company as a policy writer and later as Mercherle's chief secretary.
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Features
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In addition to charging lower premiums, other features helped the company compete against established organizations. State farm offered premiums in six-month increments. Paying twice a year allowed the customer to purchase coverage with less money and made it easier for farmers who often had to wait for their crop to sell in order to complete purchases. Cost savings were also accomplished by having the home office and branches perform clerical work and issuing policies leaving the agent free to stay in the field. A simplified rating system and careful selection of business made it possible for State Farm to keep operating costs about 40 percent lower than their competitors.
History
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State Farm has grown from a single mutual company in Illinois to a family of companies providing a variety of services. In 1929, the State Farm Life Insurance Company was founded. In 1935, State Farm Fire and Casualty was formed to provide property insurance to customers in both the United States and Canada. In 1988, State Farm Bank was added to the family.
Significance
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Still headquartered in Illinois, State Farm has grown into a Fortune 500 company employing more than 68,000 employees and 17,000 agents. The company continues to maintain the "good neighbor" approach of it founder by supporting the communities they serve through grants and educational programs. Additionally, the company continues to reward claim free clients through discounts and lower premiums as the company did in the beginning.
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